Marc Brown: End of aid may pull plug on Cape Wind

Wednesday

Dec 4, 2013 at 12:01 AM

KINGSTON, N.H.Grim news is on the horizon for the developers of the Cape Wind Project, which would place hundreds of wind turbines in Nantucket Sound. The federal Production Tax Credit (PTC) is set to...

By Marc Brown

KINGSTON, N.H.

Grim news is on the horizon for the developers of the Cape Wind Project, which would place hundreds of wind turbines in Nantucket Sound. The federal Production Tax Credit (PTC) is set to expire on Dec. 31, and without an extension it is unlikely that Cape Wind will secure adequate financing to begin the project. That is a reasonable speculation, given that developers have yet to secure the financing needed to reach the 5 percent project spending threshold necessary to trigger the PTC.

The most astonishing aspect of this failure is that Cape Wind secured Power Purchase Agreements (PPAs) for 77.5 percent of its power at over 20 cents per KWh — five times the average wholesale price of electricity in New England for 2012. However, according to supporters of the project, that won’t be the cost that will be passed onto ratepayers. Why? Because the cost of electricity from Cape Wind will be mixed with other (i.e., cheaper) generating sources. (Which begs the question: Why can’t businesses and residents just have the cheaper power and not Cape Wind’s?)

Cape Wind is the poster child for bad public policy that has government intervening in markets to pick winners and losers. Cape Wind’s developers have enjoyed all of the benefits associated with politically preferred projects: Renewable Portfolio Standards that require electricity suppliers to purchase a percentage of their generation from renewable resources (thus the overpriced PPAs); the Regional Greenhouse Gas Initiative, which is a carbon tax that favors emissions-free generation; and tax credits that could capitalize 30 percent of the project. On top of this, the project is seeking a massive loan guarantee from the federal government.

All this has been done with complete disregard for ratepayers. But, despite these advantages, the project still cannot get off the ground.

Why are private investors giving the project a good leaving alone? Probably because its business plan is dubious at best.

While the proposed capacity of the project is 468 MW, the expected production is 178 MW, which makes the project’s assumed capacity factor approximately 37 percent. This is a very generous estimate, given that the Department of Energy pegs current wind farm capacity in the Northeast at 24 percent — meaning that Cape Wind would have to produce 50 percent more power than other wind farms in the region to meet that target.

A study by Harvard University indicates that the actual generation from large-scale wind farms may be substantially less than anticipated. Led by Harvard applied physicist David Keith, the study indicated the generating capacity of large-scale wind farms larger than 100 square kilometers could peak anywhere from 0.5 and 1 watts per square meter. Prior estimates put these figures at 2 to 7 watts per square meter. This means that production calculations may be vastly overestimating how many KWhs will be generated — information that surely is not part of Cape Wind’s calculus.

This past April, the New England Ratepayers Association sponsored a survey by the University of New Hampshire Survey Center. Here are a few key points from the survey, a random sample of 509 Massachusetts adults who make purchasing decisions about energy for their households, with a sampling error of plus or minus 4.3 percent:

•69 percent of Massachusetts residents believe the Cape Wind Project should not receive federal loan guarantees in addition to the other subsidies and the lucrative PPA agreements.

•A majority of respondents (50 percent) believe that the Cape Wind project should be halted immediately, with only 41 percent of Massachusetts residents supporting the Cape Wind project.

•Most respondents would not support Cape Wind if they knew it would hurt tourism and property values (63 percent) or when they learn that ratepayers will pay billions in higher rates over the life of the project (65 percent).

•When provided information about costs of generation, a majority of people would prefer to get their power from natural gas and hydro (59 percent), with only 25 percent preferring to get their power from costly solar or Cape Wind.

So what will Cape Wind developers do should the PTC expire without the project qualifying for the funds? They can scale back the project to the point where they meet the power demands of the PPA, but that would still require funding that has been elusive thus far.

More likely, without the PTC and a bailout in the form of a Department of Energy loan guarantee (think Solyndra), the Cape Wind project will fade away — and thankfully save ratepayers billions in the process.

New England will need more power to ensure a stable and reliable grid in the future, but we don’t need to saddle residents and businesses with inflated electricity rates along the way.

Marc Brown is the executive director of the New England Ratepayers Association